It seems like every time you go online, more and more companies are holding giveaways. Why? In exchange for offering something for “free,” they’re hoping to increase interactions (and deepen relationships) with their customers, as well as gain followers on social media.
Giveaways may be a no-brainer for promoting your business, but there’s always a catch: you must follow the federal and state laws that govern giveaways.
“More and more I’m seeing giveaways that may not be fully compliant with federal or state laws governing giveaways. Whether online or off, there are a host of laws that every contest holder must follow or risk significant fines or, in some states, criminal prosecution. Giveaway laws in the U.S. cover sweepstakes, contests, and lotteries,” says Sara Hawkins, an attorney whose client work includes providing counsel and documentation for sweepstakes and contests.
Sweepstakes, Contests, & Lotteries
It helps to understand the legal definitions of each term. Here they are, courtesy of Sara Hawkins:
- Sweepstakes are prize giveaways where the winners are chosen by the luck of the draw. Prizes can be almost anything from handmade cards to an all-expenses-paid trip.
- Contests choose a winner based on some merit. The winner is chosen based on some criteria such as best photo, funniest parenting tip, etc.
- A Lottery is a prize drawing where people must pay money to buy a chance to win. Lotteries are highly regulated and should not be run without consulting legal counsel.
What is a Giveaway?
“Giveaway is a general umbrella term that encompasses a variety of different types of promotions,” notes Hawkins. “Sweepstakes has a legally-defined definition, whereas giveaway does not. Using the term giveaway can be confusing if the promotion is not, in fact, a sweepstakes.”
Laws that Govern
In the United States, these promotions are regulated by numerous federal and state laws as well as overseen by various federal agencies. Examples of states with specific laws include California, New York, and Florida. Furthermore, if your giveaway is over $5,000, there will be other state laws and bonding requirements that will need to be met.
Preventing your Giveaway from Becoming an Illegal Lottery
Creating a giveaway that’s actually an illegal lottery could be a nightmare. In order for a promotion to be considered a lottery, it must have three things:
- Prize – of any kind
- Chance – anyone can win – winners are picked at random
- Consideration – something of value. Consideration could actually be asking someone to become a social media follower.
The consideration property of a lottery is problematic, as many giveaways have been created for the purpose of gaining social media followers. Social media companies, of course, don’t like the idea of marketers asking for followers or “likes” in exchange for prizes. Facebook took a stand on this recently, with the November 5, 2014 Facebook ban on “like-gating,” or running Facebook promotions to gain likes.
However, you can increase your social media interactions, and sometimes even get around “like-gating” and similar rules, by offering several options for entry, including an option to enter as a matter of chance. For example:
All newsletter subscribers are automatically entered into the sweepstakes. (This is the luck of the draw).
You could then offer more ways for people to enter. For example:
You can also gain additional entries for each of these activities:
– Leaving a comment on our Facebook Fan Page or referencing us through our username on Twitter or via hashtag #abccogiveaway on Twitter, Pinterest, Google+, or Instagram
– Leaving a comment on this post.
The second method should be leaving a comment on wherever you first announced the giveaway, whether that’s on your blog or on social media. The important thing is that you are not asking them to become fans or followers, but instead are asking them to interact with you on social media. Of course in some social media, such as Facebook, they would need to like your Page before being able to post on it. Facebook has specific guidelines for promotions. You can only run promotions on Page Timelines and on Apps through Facebook, not on personal Timelines.
Creating Rules for your Giveaway
You’ll need to post the rules for your giveaway, either on your website, in a blog post, or both, and reference those rules as needed. If you’ve met the criteria for a sweepstakes, you’ll need to include the following:
- Identify the prize: provide as much detail as necessary to both identify it and make it attractive to your readers
- Who can enter: detail who is allowed to enter, as well as those excluded (most sweepstakes allow only U.S. residents to participate, as Canadian laws and laws in other countries have different definitions of types of giveaways)
- Duration: clearly set out when the giveaway (sweepstakes) will begin and end, and follow through
- How to enter: let the reader know what entry methods are available for your sweepstakes
- How the winner is chosen: describe how you will choose your winner, especially since you are likely choosing randomly
- Technical issues: since we all know there could be technical problems, let people know how they will be handled. For example, will you delete duplicate entries? If your site goes down, what will you do?
In addition, anything the administrator or sponsor intends to do with the information provided must always be disclosed in the rules. If there is an intent to use the information for marketing or research purposes, that should be disclosed so an entrant clearly understand what, if any, rights they may be waiving.
Any giveaway with a value of $600 or more must be reported to the Internal Revenue Service. Entrants must be aware that the prize value of $600 or more means that they will need to complete a prize validation and are responsible for any taxes that may result from winning. According to the IRS, the value of any prize may be taxable regardless of how small, even though the IRS reporting requirement is only triggered by prizes valued at $600 or more. Just because you may not have to report the winner’s information to the IRS does not mean the winner would be exempt from tax liability, according to Hawkins.
While giveaways may help you gain potential customers and deepen relationships with current customers, they need to be set up to be compliant with laws and guidelines on social media.